ABOUT SEAN STANNARD-STOCKTON

Sean Stannard-Stockton is the president and chief investment officer of Ensemble Capital Management, located in Burlingame, CA, midway between San Francisco and Silicon Valley. From 2006 through 2012, Sean authored the Tactical Philanthropy blog and wrote regular philanthropy columns for both the Financial Times and the Chronicle of Philanthropy. In 2012, Sean officially ended the blog to focus on growing Ensemble Capital.

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The Art of Giving: Getting Started

November 4, 2009 – 8:26 pm

Today I’d like to present a condensed excerpt from the first chapter of The Art of Giving: Where the Soul Meets the Business Plan, the new book by Charles Bronfman and Jeffrey Solomon. Yesterday, Mr. Bronfman and Mr. Solomon offered a guest post that stimulated 25+ comments. On Friday, they will offer a set of questions every donor should ask.

Like yesterday, comments on this post will be eligible to receive a set of the Picture Your Legacy tool from the Bronfman Philanthropies 21/64 group (see yesterday’s post for details).

By Charles Bronfman and Jeffrey Solomon

SAY YOU’RE SIXTY-SEVEN, AND YOU’VE SPENT your career turning your father’s hardware store into a successful chain of stores throughout the Midwest. Your children have no interest in taking over the business, so you decide to cash out. When the $50 million arrives by wire into your account, you are floating. Then it hits: What to do with so much money? You have vague thoughts of travel and a fondness for musical theater, but few interests beyond that. Your life has been your work. You’re a widower, and you want to set some of the money aside for your children and to be comfortable yourself. But that still leaves well over $30 million. You’re seized by the idea that you should be good to the society that has been so good to you. A major gift to your alma mater, perhaps, or possibly endowing a struggling theater in town? But, you wonder, aren’t there more important causes?

But what?

Or maybe you’re forty-three, with a fistful of stock options in a company that was nothing more than a bunch of interesting algorithms when you first signed on. The options have skyrocketed in value nearly a thousand-fold, making your net worth jump from about $17,000, or whatever your car and clothes were worth at the age of twenty-four when you joined the company, to somewhere north of $10 million today. You’re unmarried, with just a cat for regular company—and you aren’t the type to give everything to her. You have your own financial security to consider. But that still leaves at least $5 million ‘‘extra,’’ as you think of it. And with everything that is going on in the world, you feel a little weird about having so much money just sitting in your investment account. You’ve contributed to political campaigns, donated a few thousand dollars to breast cancer research and other causes, but now you’re thinking that maybe you should do more to make a positive difference in the world.

But what?

Or let’s say you’re twenty-five. You’ve been at your first job for a few years now and recently got a raise with your first promotion. You rent, have a roommate, and tend to be economical. So even after your student loans and car payments, you have a bit left over. You see what is going on in the world, and you’d like to do something to help. Your company will match your donations dollar for dollar. But there are so many choices! You’re besieged by requests from friends to sponsor them on charitable walks, runs, rides, events. You don’t have that much money, but you would like to do something smart and useful with it.

But what?

Can you just sprinkle your money over a few congenial nonprofits with nice brochures and celebrity endorsements, and then watch these institutions crank out good works? Perhaps. But for all of its many assets, the nonprofit sector, like all others, is pockmarked with tragically underperforming elements. Just as there are killer stocks and there are duds, the investor in nonprofits faces a welter of good, not-so-good, and third-rate organizations clamoring for his money.

We think of philanthropy in investment terms—investments for a better world. Although, as we will point out, the challenge in nonprofits is often choosing between good and good, there are enough underperforming ones that donors should be wary. Too many nonprofits lack clear purpose, effective leadership, and competent management, and their highest priority appears to be preserving their own existence. We assail these underperformers because such entities turn the spiritual act of giving into a frustrating game.

It is important to remember that a nonprofit is a business, and it should be run as one, with no less an emphasis on efficiency, transparency, and accountability than you would find in its for-profit counterparts—indeed, more so. Although we celebrate the differences between mission-oriented nonprofits and profit-oriented businesses, we acknowledge the gap in measurements, benchmarks, and markets.

Nevertheless, the principles and experience of transparent competition can serve societal needs beyond the simple marketplace. There is a plethora of nonprofits in the United States, over 1.7 million in all, and they are often staffed by untrained volunteers who can be difficult to manage without financial inducements. The talent pool for paid management staff is shallow. Who do you know who made it his life’s ambition to run a nonprofit? Compared to for-profit equivalents, the salaries are paltry, the status not much better, and precious few university programs offer these professionals any serious instruction.

Now into this jumble comes you, the neophyte donor, eager to make a difference with your money. Most likely, you have no direct experience with nonprofits beyond having been a consumer of some nonprofit service in a hospital or school, or done some volunteer work, or perhaps served on a board. And yet you expect to engage in serious philanthropy before the week is out.

You have every right to insist on best practices in any organization you are going to favor with a donation, but you also need to focus on yourself. This may seem antithetical in an area of life that seems to rely on the most abject sort of selflessness: giving your hard-earned money to benefit people you don’t know. But every transaction is an exchange; nothing is ever one way. When you give, you get, and we believe you need to focus on what it is that you are getting for what you give. We argue that what you get in philanthropy is nourishment for that portion of the body that is so sacred it cannot be found in any book of anatomy: the soul, where all that is best in us resides. It is simultaneously the innermost self and the one so external it seems somehow eternal—which makes it the natural connection point for our philanthropy, for we give to improve the world in a lasting way and to leave it with our stamp.

Excerpted with permission of the publisher Jossey-Bass, a Wiley Imprint, from The Art of Giving: Where the Soul Meets the Business Plan. Copyright (c) 2010 by The Andrea and Charles Bronfman Philanthropies.

4 Comments

As I noted in your other post, I think people seek two things in giving – personal and social ROI, and the two are somewhat entertwined. I can’t tell from today’s book excerpt where the writers of this new book are going, but it seems they are urging us to focus on the #2 – the social ROI – in a more dispassionate and analytical way. I think most donors want to know their gifts have impact but unless they are a high net worth individual or an outlier like giving circle member, the amount of effort the average donor will expend on determining their impact and using it to shape their giving patterns is going to be minimal. Heck, we don’t even spend that kind of time on management of our 401k. So the key is going to be easy, apples-to-apples measurement of nonprofit effectiveness. Like 3 stars. And that is really hard to accomplish.

If we’re being urged to think in business terms, we have a supply problem (no great, consistent, comparable data from nonprofits, though GreatNonprofits, Charity Navigator and others are trying to get us there) and we have a demand problem (not that many donors are going to spend a lot of time and energy analyzing their impact – they want simple answers). That’s going to make this kind of change very slow.

But that kind of change has to happen to some degree. Donors want a feeling they ARE having SOME KIND of impact, and they want SOME feeling of involvement in the cause they are supporting. We have to do better as nonprofits to meet those needs. Of that much, I’m sure. Because if we feel our money is wasted, we lose on both forms of ROI – personal AND social.

Hmm. Interesting discussion you have going on here Sean. I was particularly struck by the profile of the twenty-five year old who just received his first promotion and would decide to make contributions to a nonprofit. I’m not so sure that’s the case anymore – I think most people in that age range donate to organizations they have some personal connection with – maybe a friend works or runs a particular nonprofit or they have been the beneficiary of some nonprofit in their lives or have seen the work of a local nonprofit. In the increasingly connected world made possible by social media and social networks, research on the “best” nonprofits may lose to the “personal” nonprofits. As long as those “personal” nonprofits meet some threshold of efficacy, I think the 25-year old is more likely to donate his money there – because that personal connection provides more nourishment to the soul.

But one of the more fundamental changes that’s happening in the social sector is the increase in social businesses and PRIs. Unless the nonprofit sector (and the funders who fund them) gets over the deep structural issues of refusing to pay for and overlooking talent, more and more people will create businesses to address social issues instead to be free of indefensible constraints on nonprofit activity. So then regardless of what your profile is as a donor, you may choose to have your cake and eat it too when it comes to allocating your financial assets and generating social return.

Can’t we expect donors to integrate both the personal connection and the “best nonprofit” mindset? Can’t people get both personal and social ROI?

It seems to me that the 25-year-old who funds something that she has a personal connection to is likely funding something that one of her more involved friends is running. Can’t that person do some analytical leg work before going out and drafting a ton of friends and family to support a cause?

Katya’s right, that most donors won’t do a ton of research before every donation. Just like most people buy cars, pick hotels and manage their investments with little research. However, in each of those categories there is a massive number of people who do want to make sure they are making the best decision and who have a wide array of tools available to them to help them decide.

I think Katya Andresen really nicely summarizes the two broad reasons that people give: 1) for personal return on investment (recognition, feels good, status, increase in network) and 2) social return in investment (make a difference, create impact, solve a problem, etc).

I just blogged what my three takeaways are from this discussion but essentially here they are:

First, anyone who raises money in the nonprofit sector should dig into the discussion. It provides fascinating insight into the various motivations for giving to nonprofits. A reading of the discussion gets a nonprofit fundraiser out of the mentality of raising money around their organization’s needs and into the more lucrative mindset of what is compelling to potential donors.

Second, I think that there is an increasing focus by philanthropists on the second motivation (social ROI), as opposed to a past focus on individual ROI. Because of the past philanthropic focus on individual gain, the resulting nonprofit fundraising activities have centered on activities that provided donors an individual ROI, for example capital campaigns that promise a new building with a donor’s name emblazoned on it, or events that provide networking and exclusive activities, or “thank you” gifts. As social ROI becomes more of an interest to philanthropists, smart nonprofits will focus on creating their logic models and demonstrating impact. And when they do this, I would argue that they will actually be more successful at raising money (see Kay Sprinkel Grace’s Beyond Fundraising).

Finally, we will never get to a place where all individual giving is social ROI focused. As the authors of the new book point out, philanthropy is very much an individual sport that is focused on the individual’s values and what they want to accomplish (whether that be personal or societal gain, or a combination of both. Which then begs the question, will we ever get to a place where social problems are solved through capital raised from individual philanthropists? Charitable contributions to the nonprofit sector make up 12% of the sector’s money. Roughly 80% of that comes from individuals. Government money has been declining and so nonprofits have increasingly focused on dollars from individuals to make up the difference. If individual philanthropy will always have an individual return motivation, is that ultimately a problem for a sector that is trying to provide social goods?